Euro falls closer to parity with dollar
The euro extended its seemingly unstoppable decline yesterday, with City analysts predicting that the currency will soon be on a par with the US dollar.
A drop of more than one per cent pushed the euro to below $1.06 for the first time since 2003.
The pound climbed to be worth over €1.42 in mid-day trading, up from below €1.35 just a month ago.
A tumbling euro is a boon to holidaying Brits travelling to any of the 19 European countries that use the single currency.
It also marks a period of extreme volatility in global markets.
“It is hard to fathom the scale of shock being inflicted in slow-motion on global markets currently,” said BNP Paribas analyst Gerry Fowler.
“Twenty-five per cent currency weakening and a 50 per cent decline in oil prices in the space of seven months might be unprecedented.”
A trillion-euro stimulus plan, kicked off this week by the European Central Bank (ECB), is weighing on the currency, which has also been dragged down by sluggish growth, troubles in Greece, and the prospect of a rate hike in the US.
“Investors believe that the ECB is targeting [euro-dollar] parity,” said Sebastien Galy of Societe Generale last night, referring to a survey of clients. ECB officials insist the weakening of the currency is not part of their plans, despite the drop helping to boost Eurozone businesses that export beyond the bloc. “The ECB does not have the exchange rate as a policy,” insisted governing council member Ewald Nowotny yesterday. “It’s a side effect of other things.”
Yet some analysts predict further falls. Deutsche Bank this week said the euro could touch $0.85 by 2017.
“Many will abide by the principle of avoiding falling knifes,” said BNY Mellon’s Neil Mellor on the question of whether traders should keep selling. “However, our suspicion is that talk of parity and beyond is by no means far-fetched.”